Pages

You love the blog, so subscribe to the Beervana Podcast on iTunes or Soundcloud today!

Saturday, May 07, 2016

The Brewers Association Wrestles with Buy-Outs

If I could have teleported into Philadelphia for just one event in the Craft Brewers Conference (CBC), it would have been the one where the Brewers Association (BA) addressed the wave of buyouts over the past two years. It sounds like it was every bit as fascinating as I'd hoped. The situation, as you all know, is that the largest and most successful American breweries are ripe for acquisition by bigger international players. And that has happened in dramatic fashion, with nearly 30 sales in the past year and a half. The BA is a trade organization, and was set up to advocate for small brewers. As the most influential members of that organization leave--to the very competition BA has protected its members from--it represents a serious crisis for the organization.

Brewers Association Director Paul Gatza addressed the CBC on Thursday. He did the only thing he can do--parse between the deals that are bad for his membership and those that are (at least for now) relatively benign. Chris Funari:

“Private equity investments are different,” he said. “The company
doesn’t get the market access benefits or the ingredient access
benefits. It feels like it is more a form of banking.”

As more money pours into the space and as savvy business-minded
investors become craft brewery operators, the deep passion for brewing —
which has long been a cornerstone of craft and a major reason for the
category’s impressive growth spurt in recent years — is becoming less of
a focus, Gatza argued. “It feels like its differing and it feels like we’re losing some of that,” he said.

And it views even small labels owned by bigger companies as a threat on a
different scale than that presented by private equity. Even knowing
that private equity’s passion might lie more closely to business than to
brewing, the BA still regards investments from that sector as
potentially less harmful to the overall craft universe, however.

Although this seems awkwardly legalistic, it's fundamentally accurate. The BA wandered into the weeds when it tried to clothe itself in the language of heroism (craft beer as a revolutionary social change). But its role as a protector of the little guy is critical for an open, healthy market. And in this regard, BA really does travel with the angels. Here's what at stake:

Part of the reason these acquisitions are such a threat is their
impact on access to raw ingredients and distribution networks. As the
largest brewer in the world, ABI can buy ingredients in much larger
quantities (for much cheaper prices) causing availability issues for
small craft brewers. In addition, ABI owns a significant portion of the
American distribution network, outright owning distributors in 10 states
and having significant influence over their distributor network
nationwide.

“What is needed is a truly independent beer distribution system” said
Pease. “Anheuser-Busch InBev has rolled out an incentive program… that
basically aligns their distributors not to sell brands that are
over 15,000 barrels in their house. We have no problem with
Anheuser-Busch InBev incentivizing their distributors to sell more of
their own product, but for them to incentivize distributors not to sell other products is something we want to see remedied.”

Consolidation does pose real dangers, and in the coming years, the Brewers Association is going to be the blade edge leading the fight. They were caught flat-footed by the recent buyouts (which were entirely predictable), but now they have become a given. The BA's going to have to give up being a champion for that nebulous concept of "craft beer" and retrench for the fight for small beer. That's the battleground of the future.

It's going to require a culture change, too. Charlie Papazian was committed to a hippy-ish ideal about brewers being these saintly artisans interested only in good beer, not filthy lucre. That led to this idea that "craft beer" bore the mark of purity, and was somehow a kind of holy water produced by sacred hands. (That sounds over the top, but the language he's been using for forty years confirms it.)

What the BA really needs to be is a voice for the small brewers, full stop. They will have proportionately less power as the Lagunitases and Goose Islands become more dominant in the "craft" segment, and increasingly, those brands will pose the greatest threat to the corner brewery. The sooner the Brewers Association changes its culture to accommodate that truth, the better.

But what is "small beer"? Are Sierra Nevada and the other Craft breweries with multiple factories "small beer", really? And aren't they also a threat to the truly small and local breweries, whose interest the BA claims to protect?

That slide is nonsense. "Craft Brewer" definition more important than ever is nonsense. As soon as they subverted Traditional to mean "Traditional and Innovative" in order to acquire a one year statistical bump from bringing old school regional lager breweries on board, they compromised whatever vision you could claim they had.

They really need to redefine themselves as a trade block, but they're too bought into the idea of "passion" to do what needs to be done. You could have an effective economic entity with 4500 members with lock step solid messaging but because the "craft" messaging is so vague and constantly being questioned not only by commentators but brewers, they're going to continue to wander aimlessly.

Max, I think this could be solved by a more coherent mission statement. Right now the BA has conflated the interests of their members with vague, gauzy goals like promoting "craft beer." But if they retooled and had a trade organization focused on keeping the market competitive for smaller players, they wouldn't have to put a size limit on brewery membership. If member breweries are willing to support actions that benefit diversity in the marketplace and resist consolidation, it doesn't matter if they make a thousand or two million barrels.

BA has always begged the question with the definition of "craft beer." The definition is arbitrary, and has changed through the years. if it were about beer itself, the vilified low-IBU high-adjunct american industrial lager would never be considered "craft," even if a 5BBL brewery made it. So maybe it's about production mechanics, then? at what point does brewery automation make it not "craft"? or is it a business? but business-only issues are not what Papazian was about...

Pete, counting myself among those hardcore craft fans, I wouldn't use the word "fine" for AB entering the craft space, but they ARE in it All those eight and nine figure paychecks are efficacious Trojan horses. The lines have been blurred. The shades of grey number beyond 50. Let's just look at 10 Barrel. They do still employ Oregonians, more than the 30 smallest Oregon breweries combined (I pulled that # out of my ass). And that Pearl IPA is better than most other Oregon IPAs. And that cucumber berliner weisse is easily in the top 2 cucumber berliner weisses and now it can easily be found meaning if you're in the mood for a tart cuke beer you nearly have to support the Big Bad Bud. Do I personally spend my money on that brand? No. But do consumers need to be seriously educated to that affect? No again.